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Global Law Firms Rule (Or Maybe They Don't)

Posted by Michael D. Goldhaber

Is there empirical proof that global law firms are pulling away from
the pack? There is, according to the two first speakers at Friday's
excellent conference on the Globalization of the Legal Profession at
Harvard Law School, co-sponsored by the American Society of
International Law and Harvard's Program on the Legal Profession. But color us unconvinced.

James Jones, who chairs the Hildebrandt Institute, cited Citi Private
Bank data from earlier this year, drawn from about seventy law firms
that do their banking with Citi. These data for the first time
show that global law firms (which they define as firms with at least a
quarter of their lawyers outside their home jurisdiction) were
outperforming their rivals. However, as Jones admitted, as the
meltdown goes global, it may only be a matter of time before the data
shows every firm bottoming out.

We're with Jones on his afterthought. If one thing has emerged in
the past month, it is that emerging markets will not save the world economy. We don't
mean to be a rude guest, but two
institutions that have learned that lesson hard are Harvard University
(whose endowment has lost big emerging market bets) and Citigroup Inc.

Peter Kalis, the impresario of K&L Gates, tried to prove the
triumph of global firms with good old-fashioned Am Law surveys. Over
the decade ending in 2007, he noted, the Global 50 outperformed the Am
Law 100, which in turn outperformed the Second Hundred, on both headcount growth (73 percent
to 67 percent to 32 percent) and revenue growth (217 percent to 176 percent to 110 percent). We've made similar arguments--but we had the excuse of writing on
deadline.

The first
thing to realize is that this analysis compares the top x firms of 1998 with
the top x firms of 2007; these are not the identical firms. So these
numbers principally measure the rate of consolidation among large and
midsize firms. To be sure, Second Hundred firms are lagging, most
importantly in profits. But these include some regional sad-sacks (the
group from which Kalis is to be congratulated for elevating K&L Gates). It doesn't bear on the strategic contests between
Linklaters and Slaughter and May, or between Sullivan & Cromwell
and Cravath, Swaine & Moore, which are being waged entirely within
the confines of the Global 50.

Later in the day, Stephen Denyer, the international development partner
at Allen & Overy, mildly settled that grand debate by observing
that clients are split fifty-fifty in preferring global shops, and that there
is room for both approaches. A great deal of ink could be saved by
reference to that great British sports cliché: Horses for courses.

Whether or not the global law firm has triumphed, the question remains: How far has it
progressed? Jones again cited Incisive Media numbers on this score. Since we've been charged with writing up many a survey, we feel
obliged to help with their interpretation.

This time Jones draws on the National Law Journal's NLJ 250 surveys. In 1987,
he notes, 57 U.S. law firms operated 148 overseas offices with 1,331
lawyers. In 1997, 101 U.S. law firms operated 368 overseas offices with
4,271 lawyers. And in 2007, 106 U.S. law firms operated 551 overseas
offices with 15,231 lawyers. Now, 15,000 is an impressive raw number,
and we were interested to see eight U.S. branches in London with a
critical mass of 150 lawyers, a dramatic change from when we covered
London in 2001–03.

But remember that the growth starts from a low base--and the pool is
large.The NLJ 250 covered 128,213 lawyers in 2007. So the overseas
corner represented only 12 percent. That's still pretty provincial by the
standards of U.K. law firms, or other U.S. industries. Compare, for
example, Clifford Chance (59 percent of revenues overseas) or IBM (63 percent of
revenues overseas). Even by Citi's rather low benchmark for a "global"
law firm (25 percent headcount outside home country), the NLJ 250 is less than halfway
there.

Globalization still has a long way to go at U.S. firms,
and reports of its triumph are premature.